"It is clear that no single nation listed in the index has got everything right, but it does reveal patterns that show how we might better achieve long and happy lives for all while living within our environmental means," Mr Marks said.

The small island state of Vanuatu is situated in the middle of the South Pacific Ocean, and has a population of 209,000. Its economy is built around small-scale agriculture and tourism.

Latin American nations dominate the top 10 places in the index, while African and Eastern European nations fill most of the bottom 10.

Among the world's largest economies, Germany is ranked 81st, Japan 95th, while the US comes in at 150th.

Retail therapy will not bring happiness, according to the study

Richard Layard, director of the Well-Being Programme at the London School of Economics' Centre for Economic Performance, said that the index was an interesting way to tackle the issue of modern life's environmental impact.

"It reminds us that it is not good enough to be happy today if we are impoverishing future generations through global warming.

"Over the last 50 years, living standards in the West have improved enormously but we have become no happier," Mr Layard told the BBC.

"This shows we should not sacrifice human relationships, which are the main source of happiness, for the sake of economic growth."

Although Vanuatu tops the happiness index, it is ranked 207th out of 233 economies when measured against Gross Domestic Product (GDP).

Simon Bullock, economics co-ordinator for Friends of the Earth, which helped compile the data, said the findings showed that happiness did not have to cost the Earth.

"The UK economy hoovers up vast quantities of the world's scarce resources, yet British people are no happier than Colombians, who use far fewer," he said.

"The current crude focus on GDP is outdated, destructive and doesn't deliver a better quality of life."

Nef is calling for the adoption of a "global manifesto for a happier planet" that will list ways nations can live within their environmental limits and increase people's quality of life. The recommendations include:

Eradicating extreme poverty and hunger

Recognising the contribution of individuals and unpaid work

Ensuring economic policies stay within environmental limits

The index builds on a report that Nef published earlier this year that warned if annual global consumption levels matched the UK's, it would take 3.1 Earths to meet the demand.